U.S. stocks slide as Greek debt worries grow

Pessimism about Greece’s financial problems returned to the financial markets Monday. Stocks fell sharply as investors once again doubted that the country will be able to avoid a default on its debt.

The uncertainty sent the Dow Jones industrial average down 183 points, or 1.6 percent, to 11,325 shortly before 3 p.m. Eastern time. The drop ended five days of gains for stocks, and marked the return of the back-and-forth trading that has accompanied the uncertainty about Europe’s debt crisis.

The S&P 500 gained 5.4 percent last week as it appeared Greece would get its bailout. But European finance ministers said Friday they would delay authorizing an $11 billion installment of emergency funds for Greece until October. On Monday, the country’s finance minister held an emergency teleconference with its international creditors. They are pressuring the government to implement austerity measures to reduce Greece’s debt. Investors fear that Greece won’t be able to convince lenders that it can pay its debts — and that it won’t get the money it needs to avoid a default on debts that must be paid next month.

Investors have been sensitive to each piece of news that emerges from Europe, and that has helped feed the volatility in stocks the past few months.

“After every meeting in Europe there’s a spin put on it — either ‘this was good and a solution’s really soon,’ or someone looks the wrong way and the media says there’s no solution,” said Rob Lutts, president and chief investment officer of Boston-based Cabot Money Management.

If Greece were to default on its debt, other European countries with heavy debt would likely be judged less credit-worthy and have difficulty borrowing money. But the problems go beyond Europe. U.S. bank stocks have fallen on concerns that a default would make it hard for European banks to pay their bills — including the billions of dollars that U.S. banks have lent them. There are concerns about a lending crisis similar to what the world saw in 2008.

There is also concern about a recession in Europe, which already has a weak economy. The companies in the S&P 500 get 20 percent of their net income from European countries. If their business suffers, that could also hurt the struggling U.S. economy.

Investors also appeared pessimistic about a Federal Reserve policy decision expected Wednesday. Some economists believe that since the Fed decided to hold a two-day meeting instead of the originally planned one-day session, that it was preparing to take steps to stimulate the economy. However, other analysts doubt that the Fed will announce a new plan for the economy.

There is too much disagreement among Fed officials about monetary policy for a decision to right now, said Ralph Fogel, head of investment strategy at Fogel Neale Partners in New York. “They’ll have to let it play out at least a little while longer, and I think they’ll wait until November,” Fogel said.

Separately, President Barack Obama on Monday called for $1.5 trillion in new taxes to help reduce the U.S. deficit. He said, “we can’t just cut our way out of this hole.”

The proposal is being opposed by House Speaker John Boehner, who has said the Republican Party won’t accept any tax increases to lower deficits. Obama’s speech marked the start of a new round of deficit-reduction negotiations that are likely to be contentious.